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Structural adjustment programmes (SAPs) consist of loans provided by the International Monetary Fund (IMF) and the World Bank (WB) to countries that experienced economic crises.[1]
The two Bretton Woods Institutions require borrowing countries to implement certain policies in order to obtain new loans (or to lower interest rates on existing ones). The conditionality clauses attached to the loans have been criticized because of their effects on the social sector.[1]

SAPs are created with the goal of reducing the borrowing country's fiscal imbalances in the short and medium term or in order to adjust the economy to long-term growth.[2]
The bank from which a borrowing country receives its loan depends upon the type of necessity. The IMF usually implements stabilization policies and the WB is in charge of adjustment measures.[2]

SAPs are supposed to allow the economies of the developing countries to become more market oriented. This then forces them to concentrate more on trade and production so it can boost their economy.[3]
Through conditions, SAPs generally implement "free market" programmes and policy. These programs include internal changes (notably privatization and deregulation) as well as external ones, especially the reduction of trade barriers. Countries that fail to enact these programmes may be subject to severe fiscal discipline.[2] Critics argue that the financial threats to poor countries amount to blackmail, and that poor nations have no choice but to comply.[citation needed]

Since the late 1990s, some proponents of structural adjustments (also called structural reform),[4] such as the World Bank, have spoken of "poverty reduction" as a goal. SAPs were often criticized for implementing generic free-market policy and for their lack of involvement from the borrowing country. To increase the borrowing country's involvement, developing countries are now encouraged to draw up Poverty Reduction Strategy Papers (PRSPs), which essentially take the place of SAPs. Some believe that the increase of the local government's participation in creating the policy will lead to greater ownership of the loan programs and thus better fiscal policy. The content of PRSPs has turned out to be similar to the original content of bank-authored SAPs. Critics argue that the similarities show that the banks and the countries that fund them are still overly involved in the policy-making process.[citation needed] Within the IMF, the Enhanced Structural Adjustment Facility was succeeded by the Poverty Reduction and Growth Facility, which is in turn succeeded by the Extended Credit Facility.[5][6][7][8]

As of 2018, India has been the largest recipient of structural adjustment program loans since 1990.[9][10] Such loans cannot be spent on health, development or education programs.[11] The largest of these have been to the banking sector ($2 trillion for IBRD 77880) and for Swachh Bharat mission ($1.5 trillion for IBRD 85590).[9][12]

Structural adjustment policies emerged from two of the Bretton Woods institutions, the IMF and the World Bank. They emerged from the conditionality that IMF and World Bank have been attaching to their loans since the early 1950s.[14] Initially, these conditions focused on a country's macroeconomic policy.

From the 1950s onward, the United States doled out loans and other forms of financial assistance to Third World nations (now commonly referred to as least developed countries, or LDCs). Free-market economics were encouraged in the Third World, not only as a measure of countering the spread of socialist ideology during the Cold War, but also as a means of fostering foreign direct investment (FDI) and promoting the access of foreign companies within the OECD nations to certain sectors of target economies. In particular, Western companies sought to gain access to the extraction of raw commodities, especially minerals and agricultural products. Where loans were negotiated on the basis of implementing large infrastructural projects such as roads and electrical dams, Western countries stood to gain by employing their domestic businesses and by broadening the means by which Western companies could more easily extract these resources.[citation needed]

Loans made under SAP conditions at the time were advised by the top economists of both the IMF and World Bank.[citation needed]

After the run on the dollar of 1979–80, the United States adjusted its monetary policy and instituted other measures so it could begin competing aggressively for capital on a global scale. This was successful, as can be seen from the current account of the country's balance of payments. Enormous capital flows to the United States had the corollary of dramatically depleting the availability of capital to poor and middling countries.[15]Giovanni Arrighi has observed that this scarcity of capital, which was heralded by the Mexican default of 1982,

created a propitious environment for the counterrevolution in development thought and practice that the neoliberal Washington Consensus began advocating at about the same time. Taking advantage of the financial straits of many low- and middle-income countries, the agencies of the consensus foisted on them measures of "structural adjustment" that did nothing to improve their position in the global hierarchy of wealth but greatly facilitated the redirection of capital flows toward sustaining the revival of US wealth and power.[16]

During the 1980s the IMF and WB created loan packages for the majority of countries in Sub-Saharan Africa as they experienced economic crises.[1]

To this day, economists can point to few, if any, examples of substantial economic growth among the LDCs under SAPs. Moreover, very few of the loans have been paid off. Pressure mounts to forgive these debts, some of which demand substantial portions of government expenditures to service.

Structural adjustment policies, as they are known today, originated due to a series of global economic disasters during the late 1970s: the oil crisis, debt crisis, multiple economic depressions, and stagflation.[17] These fiscal disasters led policy makers to decide that deeper intervention was necessary to improve a country's overall well-being.

In 2002, SAPs underwent another transition, the introduction of Poverty Reduction Strategy Papers. PRSPs were introduced as a result of the bank's beliefs that "successful economic policy programs must be founded on strong country ownership".[14] In addition, SAPs with their emphasis on poverty reduction have attempted to further align themselves with the Millennium Development Goals. As a result of PRSPs, a more flexible and creative approach to policy creation has been implemented at the IMF and World Bank.

While the main focus of SAPs has continued to be the balancing of external debts and trade deficits, the reasons for those debts have undergone a transition. Today, SAPs and their lending institutions have increased their sphere of influence by providing relief to countries experiencing economic problems due to natural disasters or economic mismanagement. Since their inception, SAPs have been adopted by a number of other international financial institutions.

While the structuralist period led to rapid expansion of domestically manufactured goods and high rates of economic growth, there were also some major shortcomings such as stagnating exports, elevated fiscal deficit, very high rates of inflation and the crowding out of private investments.[19] The search for alternative policy options thus seemed justified. Critics denounce, though, that even the productive state sectors were restructured for the sake of integrating these developing economies into the global market. The shift away from state intervention and ISI-led structuralism towards the free market and Export Led Growth opened a new development era and marked the triumph of capitalism.[20]

Since SAPs are based on the condition that loans have to be repaid in hard currency, economies were restructured to focus on exports as the only source for developing countries to obtain such currency. For the inward-oriented economies it was therefore mandatory to switch their entire production from what was domestically eaten, worn or used towards goods that industrialized countries were interested in.[21] However, as dozens of countries underwent this restructuration process simultaneously and often times were told to focus on similar primary goods, the situation resembled a large-scale price war: Developing countries had to compete against each other, causing massive worldwide over-production and deteriorating world market prices.[22] While this was beneficial for Western consumers, developing countries lost 52% of their revenues from exports between 1980 and 1992 because of the decline in prices.[21] Furthermore, debtor states were often encouraged to specialize in a single cash crop, like cocoa in Ghana, tobacco in Zimbabwe and prawns in the Philippines, which made them highly vulnerable to fluctuations in the world market price of these crops.[23] The other main criticism against the compelled integration of developing countries into the global market implied that their industries were not economically or socially stable and therefore not ready to compete internationally.[22] After all, the industrialized countries had engaged in the free trade of goods only after they had developed a more mature industrial structure which they had built up behind high protective tariffs and subsidies for domestic industries.[19] Consequently, the very conditions under which industrialized countries had developed, grown and prospered in the past were now discouraged by the IMF through its SAPs.[22]

The erosion of the Bretton-Woods-System in 1971 and the end of capital controls caused multinational cooperations (MNCs) to gain access to large sums of capital that they wanted to invest in new markets, such as in developing countries. However, foreign capital could not be freely invested yet because most of these countries protected their nascent industries against it. This changed radically with the implementation of SAPs in the 1980s and 1990s, when controls on foreign exchange and financial protection barriers were lifted: Economies opened up and foreign direct investment (FDI) flowed in en masse. While the scholars Cardoso and Faletto judged this as yet another way of capitalist control of the Northern industrialized countries,[24] it also brought advantages to local elites and to larger, more profitable companies who expanded in size and influence. However, smaller, less industrialized businesses and the agricultural sector suffered from reduced protection and the growing importance of transnational actors led to a decline in national control over production.[19]

Overall, it can be said that the debt crisis of the 1980s provided the IMF with the necessary leverage to impose very similar comprehensive neoliberal reforms in over 70 developing countries, thereby entirely restructuring these economies. The goal was to shift them away from state intervention and inward-oriented development and to transform them into export-led, private sector-driven economies open to foreign imports and FDI.

There are multiple criticisms that focus on different elements of SAPs.[25] There are many examples of structural adjustments failing. In Africa, instead of making economies grow fast, structural adjustment actually had a contractive impact in most countries. Economic growth in African countries in the 1980s and 1990s fell below the rates of previous decades. Agriculture suffered as state support was radically withdrawn. After independence of African countries inthe 1960s, industrialization had begun in some places, but it was now wiped out.[26]

Critics claim that SAPs threaten the sovereignty of national economies because an outside organization is dictating a nation's economic policy. Critics argue that the creation of good policy is in a sovereign nation's own best interest. Thus, SAPs are unnecessary given the state is acting in its best interest. However, supporters consider that in many developing countries, the government will favour political gain over national economic interests; that is, it will engage in rent-seeking practices to consolidate political power rather than address crucial economic issues. In many countries in sub-Saharan Africa, political instability has gone hand in hand with gross economic decline. One of the core problems with conventional structural-adjustment programmes is the disproportionate cutting of social spending.When public budgets are slashed, the primary victims are disadvantaged communities who typically are not well organized.An almost classic criticism of structural adjustment is pointing out the dramatic cuts in the education and health sectors. In many cases, governments ended up spending money on these essential services than on servicing international debts.[27]

SAPS are viewed by some postcolonialists as the modern procedure of colonization. By minimizing a government's ability to organise and regulate its internal economy, pathways are created for multinational companies to enter states and extract their resources. Upon independence from colonial rule, many nations that took on foreign debt were unable to repay it, limited as they were to production and exportation of cash crops, and restricted from control of their own more valuable natural resources (oil, minerals) by SAP free-trade and low-regulation requirements. In order to repay interest, these postcolonial countries are forced to acquire further foreign debt, in order to pay off previous interests, resulting in an endless cycle of financial subjugation.[28]

Osterhammel's The Dictionary of Human Geography defines colonialism as the "enduring relationship of domination and mode of dispossession, usually (or at least initially) between an indigenous (or enslaved) majority and a minority of interlopers (colonizers), who are convinced of their own superiority, pursue their own interests, and exercise power through a mixture of coercion, persuasion, conflict and collaboration".[29] The definition adopted by The Dictionary of Human Geography suggests that Washington Consensus SAPs resemble modern, financial colonisation.

... private interests within liberal capitalist states continue to pursue the opening up of markets abroad, and they continue to enlist their governments' support, through multilateral and bilateral arrangements—conditional aid, International Monetary Fund (IMF), and World Trade Organization (WTO). While the latter agreements are formally "voluntary," in light of the desperate economic dependence of many developing states, they are to all intents and purposes "imposed." Moreover, the beneficiaries of these agreements-sometimes intentionally so, often unintentionally-turn out to be the rich countries. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), it has been argued, turned the WTO into a "royalty collection agency" for the rich countries. The Structural Adjustment Programs (SAPs) connected to IMF loans have proven singularly disastrous for the poor countries but provide huge interest payments to the rich. In both cases, the "voluntary" signatures of poor states do not signify consent to the details of the agreement, but need. Obviously, trade—with liberal or nonliberal states—is not a moral obligation, yet conditional aid, like IMF and WTO policies, aims at changing the cultural, economic, and political constitution of a target state clearly without its consent.

A common policy required in structural adjustment is the privatization of state-owned industries and resources. This policy aims to increase efficiency and investment and to decrease state spending. State-owned resources are to be sold whether they generate a fiscal profit or not.[31]

Critics have condemned these privatization requirements, arguing that when resources are transferred to foreign corporations and/or national elites, the goal of public prosperity is replaced with the goal of private accumulation. Furthermore, state-owned firms may show fiscal losses because they fulfill a wider social role, such as providing low-cost utilities and jobs. Some scholars[who?] have argued that SAPs and neoliberal policies have negatively affected many developing countries.[32]

Critics hold SAPs responsible for much of the economic stagnation that has occurred in borrowing countries. SAPs emphasize maintaining a balanced budget, which forces austerity programs. The casualties of balancing a budget are often social programs.

For example, if a government cuts education funding, universality is impaired, and therefore long-term economic growth. Similarly, cuts to health programs have allowed[citation needed] diseases such as AIDS to devastate some areas' economies by destroying the workforce. A 2009 book by Rick Rowden entitled The Deadly Ideas of Neoliberalism: How the IMF has Undermined Public Health and the Fight Against AIDS claims that the IMF's monetarist approach towards prioritizing price stability (low inflation) and fiscal restraint (low budget deficits) was unnecessarily restrictive and has prevented developing countries from being able to scale up long-term public investment as a percentage of GDP in the underlying public health infrastructure. The book claims the consequences have been chronically underfunded public health systems, leading to dilapidated health infrastructure, inadequate numbers of health personnel, and demoralizing working conditions that have fueled the "push factors" driving the brain drain of nurses migrating from poor countries to rich ones, all of which has undermined public health systems and the fight against HIV/AIDS in developing countries.[citation needed] A counter-argument is that it is illogical to assume that reducing funding to a program automatically reduces its quality. There may be factors within these sectors that are susceptible to corruption or over-staffing that causes the initial investment to not be used as efficiently as possible.

Countries with native populations living traditional lifestyles face with unique challenges in regards to structural adjustment. Authors Ikubolajeh Bernard Logan and Kidane Mengisteab make the case in their article "IMF-World Bank Adjustment and Structural Transformation on Sub-Saharan Africa" for the ineffectiveness of structural adjustment in part being attributed to the disconnect between the informal sector of the economy as generated by traditional society and the formal sector generated by a modern, urban society.[citation needed] The rural and urban scales and the different needs of each are a factor that usually goes unexamined when analyzing the effects of structural adjustment. In some rural, traditional communities, the absence of landownership and ownership of resources, land tenure, and labor practices due to custom and tradition provides a unique situation in regard to the structural economic reform of a state. Kinship-based societies, for example, operate under the rule that collective group resources are not to serve individual purposes. Gender roles and obligations, familial relations, lineage, and household organization all play a part in the functioning of traditional society. It would then appear difficult to formulate effective economic reform policies by considering only the formal sector of society and the economy, leaving out more traditional societies and ways of life.[34]

While both the International Monetary Fund (IMF) and World Bank loan to depressed and developing countries, their loans are intended to address different problems. The IMF mainly lends to countries that have balance of payment problems (they can not pay their international debts), while the World bank offers loans to fund particular development projects. However, the World Bank also provides balance of payments support, usually through adjustment packages jointly negotiated with the IMF.

IMF loans focus on temporarily fixing problems that countries face as a whole. Traditionally IMF loans were meant to be repaid in a short duration between 2½ and 4 years. Today, there are a few longer term options available, which go up to 7
years.[35] as well as options that lend to countries in times of crises such as natural disasters or conflicts.

The IMF is supported solely by its member states, while the World Bank funds its loans with a mix of member contributions and corporate bonds. Currently there are 185 Members of the IMF (As Of February 2007) and 184 members of the World Bank. Members are assigned a quota to be reevaluated and paid on a rotating schedule. The assessed quota is based upon the donor country's portion of the world economy. One of the critiques of SAPs is that the highest donating countries hold too much influence over which countries receive the loans and the SAPs that accompany them.

^Arrighi 2010, p. 35.Reinhart & Rogoff 2009, p. 206, likewise notes that "high and volatile interest rates in the United States contributed to a spate of banking and sovereign debt crises in emerging economies, most famously in Latin America and then Africa."